The telecoms boom and bust, 1996-2002: Puzzles, paradoxes, and processing

Why did investors believe that the Telecoms Industry would provide significantly above-average returns? In this chapter possible answers to this key question are explored through the examination of three hypotheses: the Biased Incentive Hypothesis, the Information Processing/Bounded Rationality Hypothesis, and the Guru Hypothesis of Information Selection. It is shown that although elements of all three hypotheses are to be found in the processes that led to the Telecoms Boom, these hypotheses, taken individually OF collectively, fail to provide a sufficient explanation for the boom. It is concluded that in order to explain the Telecoms Boom we need to know more about how investors constructed the interpretive frameworks that shaped their understanding of how the Telecoms Industry worked and what would happen to it in the future. The discussion is then linked to Keynesian and Austrian theories of the business cycle. In the penultimate section suggestions are made for further research, drawing on some of the ideas associated with Thomas Kuhn's concept of paradigms.